LH Calculator and how to use it

I made that months ago silly :squid:

@mllcb42 this is WAY better than what I had in my head. You earned your stripes :+1:

One suggestion - a disclaimer that the calculation rarely matches exactly to the penny and should not be used as a negotiation tool in any way. It is not desking software or a full lease calculation spreadsheet.

1 Like

I tried to cover that in the notes at the top

From the top:

1 Like

Clearly I skipped over that :rofl: :+1:

You mean you didn’t read the whole thing? blasphemy!

1 Like

Plugging a contract into the calculator
Next, let’s look at an example contract and plugging it in to the calculator. For this example contract, let’s use the contract from Leasehacking 101: A guide to reading a lease contract


The goal here is to show a few different things:

  • How to translate a contract to the calculator
  • How the results from the calculator may not match the contract perfect
  • How taxes may be calculated differently

Note that this is not the ONLY way to fill this out. Some values (such as trade equity) are handled differently here than how some others may choose to do so.


Here is the contract provided with some key information highlighted:


A few important notes:

  • In some states, lease contracts do not show the MSRP
  • Contracts typically state total “rent charge” amount, rather than money factor
  • The contract may not say the sales tax percentage
  • Due at sale amounts may not be all in cash, they often include trade equity or rebates. How these non-cash amounts are taxed varies by state.

Basic lease terms
image

We’re looking at a lease contract for a Mini, that is a 36 month term, with a monthly payment of $355.82, a positive trade equity of $3000, and a total due at sale of $4768.91.

image
Of that $4768.91, $3000 is positive trade equity and $1768.91 is cash due at sale.

As such, we would expect a calculator that matches perfectly to output $355.82 per month and $1768.91 due at sale

So let’s start filling this out.


The default values:
image

Make
Now, make is easy. This is a
image

MSRP
MSRP is easy if you know it. In this case, we don’t. If you know the actual MSRP put it here. Remember from earlier that the MSRP value listed is only used by the calculator to calculate residual value based on the percentage input. In this case, the contract provides a residual value dollar value rather than a percent of MSRP. We need to make sure that residual dollar value is correct.

As such, I will put the Residual Value here and then later, say the residual value is 100%.

RV is image ,
so
image If you know the actual MSRP, put it here

Selling Price
Selling price is the agreed on value + any non-residualized extras - any trade equity (positive or negative)
The agreed on value is image
The trade value is image

As this is positive trade equity, we subtract it from the agreed on value. $35304-$3000=$32304
image
Note that the percent off MSRP is a ridiculous number as we didn’t include the actual MSRP.

Thus, the whole section should look like this:

image


Lease Terms

Term
From the contract, we know that this is a 36 month lease
image
image

Miles per Year
and that it is 10k miles per year
image
36,000 miles / 3 years = 10,000 miles per year

image

Residual Value
From the contract, we know that the residual value is
image
Now, the calculator doesn’t allow us to enter a dollar value for RV, only a percent. Because we set the MSRP above to $24180, if we plug in 100% here, the correct RV will be displayed. If you input the correct MSRP and the correct RV, it would also display $24180 here. As we don’t know those values, we couldn’t. If you know the correct RV and entered the correct MSRP above, use the correct RV here
image

Money Factor
Now, the contract does not display money factor. Instead, it gives us the total rent charge, so we will need to calculate the MF.

From the other Leasing 101 sections, recall that:

MF=(Total rent charge/term)/(adjusted cap cost+residual value)
image
image
In this case, MF= (3012.79/36)/(33138.65+24180.00)=.00146
image

We don’t have any MSDs being applied or special circumstances, so that ends this section.


Cap Cost Adjustment
Here we have no incentives, so the taxed and untaxed incentives are left blank.

We will re-visit the down payment amount to adjust our due at sale amount later, so let’s leave this at $0 for the time being.

image


Fees, Taxes, and Rebates

Note that on the contract, the fees may be found in two different places;
either the due at signing section
image
or the cap cost section
image

Acquisition Fee
Because we selected Mini as the make, the acquisition fee was auto-populated at $925. One should always verify with the contract, however, to be sure the correct value is here. Some brands have different values depending on the vehicle (Hyundai, for example, charges $595 on less expensive vehicle and $650 on vehicles over $40k) and some dealers mark up the acquisition fee.
image
image

Dealer Fees
This is typically just the dealer doc fee. It isn’t particularly important if a fee is added to the dealer fees section or the gov fee section, as long as it is captured. The sales tax numbers in these sections are ignored as they’re automatically calculated by the calculator.

image
image

Government Fees
Here we’ll end up summing a bunch of small fees, as well as title, and registration.
image
image

Total fees = 199.38+175.00+2.00+66.50 = 442.88
image

Sales Tax
As the sales tax percentage isn’t displayed on the contract, we will need to calculate it.

Sales tax percentage = ((monthly after tax/monthly before tax)-1)*100=((355.82/332.54)-1)*100=7%
image

Finally, this contract is from Florida where tax is applied to the monthly payment
image


With that all input, the calculator will output the following information:

image

Notice, that $361 per month with $1658 due at sale doesn’t quite match the $355.82 per month and $1768.91 due at sale we were expecting.

The monthly payment is higher but the due at sale is lower. We can tweak our down payment amount in the cap cost section to bring this closer to matching. Personally, I prefer to adjust the this value so that the monthly payments match. By changing the down payment amount, you’re essentially moving money away from the monthly section and to the drive-off section. You’re not making a significant change in overall cost, just changing from one bucket of money to the other.

If we add $150 to our down payment
image

The output will change
image

We’re now at $356 per month with $1814 due at sale. This is much closer to the $355.82 per month with $1768.91 we were expecting. There is essentially $45 up front difference in the calculator vs the lease contract. A small discrepancy is to be expected here. The calculator is not perfect and how taxes and such are calculated varies

Some of this difference can be seen in what the calculator shows for upfront taxes:
image

compared to what is on the lease contract
image

What is important, however, is that the numbers come out fairly close. You’re looking for large errors here. You can not use the calculator to perfectly account for every single dollar.


For reference, here is the completed calculator:

7 Likes

As an alternative, one could handle the trade in equity differently. You could choose not to put that value in the sales price and instead treat it just like cash. If we were to do that, we would expect to see an output of $355.82 per month with $4768.91 due at sale.

If we change the sales price accordingly
image

with $0 in the down payment, the output is
image

Note that there is a very large difference in monthly and drive-off here.
This is a very common error when people use the calculator. They plug in the values and the drive-off is off by thousands. As such, the monthly is incredibly different and they think they’re being charged more. You must adjust the down payment amount to make either the monthly or drive-off match

By changing the down payment to $3150, we get the monthly just about right
image

We have a drive off now of $5024 compared to the $4768.91 we were expecting. The $45 difference we had has grown to $255. In this case, because of the sales tax being applied to the trade equity that wasn’t being applied before. In different states, sales tax on trade equity is treated differently. Florida appears to not tax the trade equity.

2 Likes

The next example I plan on doing is a dealer lease sheet. Does anyone have any requests of what they’d like to see worked through?

2 Likes

I would love to see one, so I can follow through

For another example, let’s take a look at this offering from a dealer on a 2020 Volvo XC40. This time, there’s a particularly interesting tax complication as the deal at hand is in Chicago. The city of Chicago charges an additional use tax on top of the Illinois sales tax, so this deal doesn’t fit in under the normal state tax options in the calculator.

Here’s the information provided by the dealer:
image


First section is fairly self explanatory
image

Vehicle is volvo, MSRP is as listed, and there is nothing extra being added in to the selling price as listed.


image

The lease terms are also fairly cut and dry.

We can, however, use this as a good example of how the miles per year button works. Notice how the dealer quote lists the residual value as a base rate of 54% and then adjusted 4% for the 7500 miles?

image

The same could be done in the calculator by inputting the base rate at 15000 miles
image

and changing the mileage selection to 7500.
image


image
Again we start with the downpayment set to $0.

Incentives added as listed in the deal sheet.

If you independently verified the incentives and found that the dealer had rolled some of the incentives into the dealer discount, you’d want to separate them out here and make sure the sales price was adjusted accordingly.


Taxes and fees are the interesting one on this deal, particularly the government fees
image

Acquisition fee is as listed.
Dealer fees consist of the dealer doc fee.
Government fees are the sum of the extra fees:

image
image

as well as the Chicago tax
image

9% sales tax is ALSO applied to the monthly payment
image

(Don’t live in Chicago if you ever want to lease a vehicle)


As a result, the calculator outputs
image

This is a good bit off of the $507.87/mo with $808.87 drive-off that the quote offered.

Never fear… when the drive-off amount differs, we can adjust the down payment figure to shift money from the drive-off to the monthly. In this case, with a little trial and error, changing the down payment amount to:
image

changes the output to just about perfect
image


9 Likes

@mllcb42 Thank you for the incredibly helpful resource! Posting them on the Calculator page as Calculator 101!

1 Like

Hi thank you for your informative post. However I am getting a very large difference in my monthly payments when I calculate it manually vs when I use the calculator. Can you let me know if the formula I am using is correct? Or if I just have a misunderstanding on how to calculate leasing price.

Monthly Payment (excluding tax and interest) = [ (The Agreed Sell price of the car) - (MSRP * RV ) ] / Months of Car being lease. Then once you get the Monthly Payment multiply it by the (MF * 2400)/100 to calculate what monthly payment would be including interest.
This example is excluding down payment and Taxes.

Example is A car with MSRP 100,000, dealer agreed to lease at 90,000 ( 10% cap reduction), 36 months 10,000 miles/yr with MF 0.00200 and RV 60%. When I used the lease hacker calculator plugging those values I get a Pre-Tax Monthly Payment of 1,157.

However when I do it manually I get: 100,000 * .60 = 60,000 RV. 90,000-60,000 = 30,000 of deprecation 30,000/36 = 833.33 a month * (0.00200 * 2400)/100 = 39.99 of interest per month
Total Pre-Tax Monthly Payment is 833.33 + 39.99 = 873.32.

Am I doing something wrong? That is a huge difference from 1,157 to 873.32. Total of 10,212 dollars over 36 months. Sorry for the long post. If anyone can help I would greatly appreciate it. Thanks

You’re missing a couple critical parts in your calculations here:

  • The depreciation amount is the delta between your adjusted cap cost and the residual value. That generally means agreed on price - incentives + upfront taxes and fees. Those taxes and fees are often not an insignificant amount.

  • Your rent charge amount is way off.

Monthly rent charge = MF * (adjusted cap cost + residual value)

I’m the case of your .002 MF example, your monthly rent charge would be .002*(90000+60000)=300

There is an article on the LH website explaining this.

“How to calculate payments by hand”

Question for LH Calculator - do we modify the sales tax or is that set at 9%? Texas sales tax is 6.25%.

Set it to your tax rate

3 Likes

When people start asking how to work the calculator and what the numbers mean, I think you should just start linking this.

For electric and hybrid cars that are eligible for federal and state tax incentives, where do we enter this in the calculator? Just part of the reduction from MSRP to selling price? I leased a Tesla last year and when they did their paperwork they used the federal rebate as a reduction of MSRP and the state (NY) acted as cash down. In the end, I don’t see what the functional difference is there, but they were adamant that it was done like that. They passed the federal savings on to me, so I don’t care, but maybe the difference was in how it’s handled for taxes, if the state rebate is a taxed incentive. Anyway, if these two are handled this way it seems like they wouldn’t both get lumped in together at the top of the calculator. Thanks!

If the rebate is being applied up front, it’d qualify as either a taxed or untaxed incentive (depending on if it’s taxed or not in your state). If it’s a post-sale rebate, where you get a check or tax credit after the fact, it applies as a “post-sale rebate”, and only effects the total lease cost, rather than the monthly.

The functional difference here would be that generally a direct MSRP reduction is untaxed where as a cash down rebate is taxed. Varies by state, but my guess is that was the difference.